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New cash, new questions for Business Insider

New Money Raises New Questions for Business Insider Will New Money Float Business Insider? Business Insider Plays In the Traffic What is Business Insider Worth? What is a Digital Publisher Worth? Business

Business Insider, one of the sites at the forefront of creating a native digital publishing model, happily announced the other day an additional investment of $12 million, bringing its total to about $30 million.

Started by former securities analyst Henry Blodget and DoubleClick founder Kevin Ryan, the site, along with The Huffington Post, Gawker, BuzzFeed and Forbes, has helped pioneer a mix of aggregation, free contributions and syndication, along with original reporting and commentary. It has coupled this editorial approach with aggressive traffic-building strategies.

This past fall, Business Insider sought to sell itself for $100 million in cash and found no takers (there were merger proposals, but no cash offers). Its $12 million in new money comes from existing investors — Amazon.com founder and CEO Jeff Bezos among them — meaning everybody merely contributed more money to keep their present ownership stakes, without raising the value of their shares.

This lack of buyers and new investors may suggest a growing uncertainty about what the new publishing model is worth.

What Business Insider and other traffic-focused digital publishing businesses have managed to do is amass large audiences. At Business Insider, there were 25.4 million unique visitors in January — Forbes and BuzzFeed are three and four times larger than this. Pretty great publishing numbers.

But the actual meaning and value of large digital audiences remain unclear. Only a small percentage of Business Insider's traffic actually seeks it out and regards it as a worthy destination and a source with particular brand authority. Most other readers land on a Business Insider article because of search-engine results, or because of an engaging — tabloid-style — headline in a Facebook feed and other social-media promotions, which generate 30% of Business Insider's traffic.

In 2013, BI made more than $19 million, most of it selling this traffic to advertisers. It said it was profitable in the fourth quarter (usually a good quarter) and that it won't be profitable in 2014.

It has to produce lots of content — quantity tending to trump quality — to realize these traffic goals. But Business Insider is seeking to be not just a content mill (a site that uses bulk amounts of low-level content to attract mass traffic) but also a significant new brand, which adds costs. It has hired, if not quite a seasoned staff, young journalists with at least a bit of experience: about 70 of them now, costing upwards of $15 million a year. Overhead and other traffic-acquisition costs push expenditures well past $19 million. In other words, it costs more to get traffic than what you can sell it for.

In this, Business Insider finds itself in the CPM vice. The cost per thousand page views (CPMs) — a measurement beginning to be as common in conversations about digital media as movie grosses were in the 1980s — slides ever downward. This is a result of expanded inventory, general unhappiness with the results of digital advertising, lower-valued mobile space and the increasing prevalence of what's called programmatic buying (wherein a targeted audience can be assembled more cheaply outside of brands). In addition, as a site grows and its inventory expands, its CPMs decline. MailOnline, one of the most trafficked news sites, averages 160 million unique visitors a month — more than six times what Business Insider receives — but produces only $60 million in revenue, just three times more than Business Insider.

The options for a site such as Business Insider for escaping the crunch of ever-increasing traffic costs and ever-lower returns are few.

• You can produce content at a cheaper rate, using the content mill model, say, or the Forbes vanity model, letting "contributors" write whatever they want under your brand ("as I wrote in Forbes …") and not having to pay them anything — ultimately, of course, devaluing your authority.

• You can concentrate on developing innovative traffic strategies, which might for a time lower traffic costs — but soon enough, your strategies become apparent to everyone else, and all you've succeeded in doing is increasing the pressure for more and more traffic.

• You can figure out a new advertising model. Business Insider says it's going to use some of its new money to invest more heavily in video, which gets higher CPMs — but few news sites have unlocked the secret of actually getting people to watch the glut of cheaply produced digital video.

• You can try to break the CPM model with conferences and subscriptions. But conferences, save for the choicest, are a hard-scrabble, low-margin business. And subscriptions … well, good luck.

• You could accept a smaller business and make it profitable by carefully controlling your costs — but in the case of Business Insider, it's already taken too much investment to settle for a small business.

Still, you build a reputation, gain an audience and develop a reasonably talented staff. In this view, you're poised to become some sort of yet-to-be-defined cross-platform-content-provider-cum-sponsorship-deal business. "There is no one revenue strategy," is how it's put.

Part of the problem, in classic publishing terms, is that Business Insider, like the other traffic aggregators, is not an expression of a particular coherent vision or sensibility that people are compelled to seek out. It is, rather, running after the market instead of creating one.

Business Insider, BuzzFeed, Gawker, et al., have created true modern brands — brands larger than their revenue streams and current value. That's a digital conundrum, illusion vs. reality.